SMCI SMASHED! Buy the Super Micro dip or run for the hills?

23rd April 2024

Welcome to AI Collision 💥,

In today’s collision between AI and our world:

• Who’s making money?

• From the mailbox

• Dogfighting AI jets

If that’s enough to get the sledgehammer wrecking, read on…

AI Collision 💥

Is the AI BOOM over?

That’s on the minds of every investor in the stock market right now. And fairly so.

After all when you read headlines like this from the Washington Post…

… it’s hard not to get a little sceptical about the state of AI stocks.

And then, well, there’s the recent performance of the AI darlings of the market.

None more so than the gigantic $13-or-so billion rout of Super Micro Computer (NASDAQ:SMCI) from Friday last week where it sold off 23% in value in just one day.

 Source: Koyfin

That’s what we call a god candle. Except usually you can expect those god candles to be green. The red ones… put the fear of stock market gods into you.

Of course, Super Micro was by no means the only one. Hell hath no fury like a stock market that thinks a bubble is bursting.

Here’s Nvidia:

 Source: Koyfin

And here’s C3.ai, the market darling of all AI stocks (until Nvidia that is):

 Source: Koyfin

And just to round off the big ol’ red candle party, BigBear.AI, another of the 2023 AI darling stocks:

 Source: Koyfin

I’ve seen horror movies with less red.

Of course as an investor you now likely fall into one of two camps.

One being the Washington Post-esque camp considering that perhaps these AI stocks were in a bubble and that it is indeed bursting.

Or the other, more like me, that sees this kind of market as one that’s ripe for the long-term investor.

Looking at industry-defining stocks and thinking, is now a great chance to “buy the dip”?

For me it’s straight forward…

1. Who’s making money?

2. Will they continue making money as the AI revolution unfolds?

3. Have they been oversold?

Those are the three questions to figure out.

By no means is now a time to just fragrantly buy up all these dips. What we’re seeing now is pessimism that perhaps not all these companies have the sound financials that others perhaps might have.

But I can guarantee you this, there will be AI-related stocks that because of the last week, and the last couple of weeks to be frank, have been oversold.

And whether they make good long-term investments will depend on the answer to those three questions.

We will know more in the coming weeks.

For example, Super Micro reports its next earnings in a week’s time. The market is already saying earnings will be garbage. The reason? Because Super Micro didn’t give preliminary figures in its quarterly earnings announcement.

That’s right…

The company announced to market when it’d be making its earnings announcement, but because it didn’t give any figures in that announcement of the announcement, the market thinks earnings are going to suck.

True story.

Nvidia reports its earnings in about a month. The reason they were down so hard last week… because Super Micro was heavily sold off.

This is the current state of the market folks, and it’s bonkers.

Good news, that means, as I say, if you’re a long-term investor and can figure out those three answers above then I think you’ll be able to find yourself some great bargains in this current market before these earnings hit the decks.

I can’t say which ones I think, at least not right now and not in this forum, but I’ve already got at least two AI-linked plays I’m eyeing up that I’m looking to provide a full research report on and recommendation to my subscribers at Southbank Growth Advantage.

That is in addition to the other big theme we’re currently in the mix with, AI and its incredible demand for energy... If you missed that, make sure to check out last Thursday’s AI Collision 💥 here.

AI gone wild 🤪

Yesterday I got a wonderful email from a reader to tell me about his experience in the early days of computing back in the 1970s.

Here’s what MJ had to say,

A followup on the Moore’s Law story!

In 1971 I started a job as a Computer Operator for a Manufacturing Company on an IBM mainframe, which was being used at this time for functions such as wages and manufacturing resource planning.  Programs and data were on Punch cards - loading as many as 20,000 at a time.

The computer itself had 512K memory, the technology being ferrite ring. Operator access was via a golf ball typewriter, through which we would assign up to 5 “partitions” to classes of programs. Programs ran in either 80k or 128k partitions, and if you assigned the wrong one the program crashed. Storage was on tapes and exchangeable disk drives - 23Mb platters, like a stack of vinyl records, weighing in at c.20lbs each.

Within a few years, the replacement mainframe used Integrated circuits. When a memory upgrade was required, e.g. 1MB to 2MB, this would arrive in a storage chest!

The price of 512k memory at the time was around £153k, which equates to £2.7M today! So whilst Moore’s Law indicates a doubling of the number of transistors per chip every 2 years, the price has gone the other way, with Server grade memory of 256Gb costing around £2.5k today. That’s a drop of 20,000 times!

I love getting emails like these.

For a start, imagine being right there in the thick of the emergence of an exciting new industry. Then being able to see the radical change that’s taken place over the course of the next few decades.

But the bit that really makes me love to hear about the past in this way is that it helps us to form a view and take a stance on what the future might hold.

As pessimistic and sceptical as many tend to be, these stories make me incredibly optimistic about our future.

For a long time I’ve had a working theory that every decade is the same as the last. The same kinds of social issues, the same worries and concerns that people have, the same fear and propaganda pushed on them from government and media.

It’s just the way in which we receive that information and the tools (and toys) we have at our disposal change.

I’ve got some old editorial on this subject which I’ll see if I can dig out for this coming Thursday, but fundamentally the point is that we’re always worried the future will suck, but the reality is that it’s actually pretty good.

And that if we can make the kinds of leaps in technology from the days that MJ describes above to today, then just imagine what leaps we’ll make from today to 2077. I’ll be 93 by then (or at the very least an AI consciousness pestering my grandkids from their AI family cloud).

But it is exciting what comes tomorrow, and I think thanks to AI and the developments we’ll see in the coming decades it’s a highly profitable tomorrow too.

Now, I’ve made a request like I’m about to before, but if you’ve got a story like MJ’s above, I’d love to hear it. If we get a constant stream of messages, I might even add a new section around reader Q&A or feedback.

Now, to do this, I’m testing this “Message Sam Volkering” feature for the first time below. Hopefully it works, apologies if it doesn’t as intended.

If you’d like to write in, just hit the button below and it’ll open up a function where you can send me a message and let me know your story.

Boomers & Busters 💰

AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week).

Boom 📈 (***still an average week for the “boomers”)

• Cyngn (NASDAQ:CYN) up 3%

• Darktrace (LSE:DARK) up 4%

• DotDigital Group (LSE:DOTD) up 2%

Bust 📉

• Nvidia (NASDAQ:NVDA) down 10%

• Veritone (NASDAQ:VERI) down 21%

• Tesla (NASDAQ:TSLA) down 13%

From the hive mind 🧠

• The AI pins have copped a bit of flack recently as not being the future of AI devices. I agree with that for now but I have no doubt that the devices we use to access our technology will change beyond the smartphone. To say that won’t happen I think is a little narrow-sighted.

• Bit of life imitating art here. Or was it art imitating life now imitating art? Either way, the movie “Stealth” from 2005 was initially touted as “science fiction” but today, yeah it’s kind of more science reality as AI jets get into a dogfight.

• I found this to be a nice little set of graphs and charts about the state of AI right now. An interesting read and visualisation of it all.

Artificial Polltelligence 🗳️

Power, power and more power. It is critical that if we continue down this path of high-performance computing that we figure out the power situation.

By that I mean that you and I need to still run things in the home like toasters and airconditioning units or boilers or phone chargers and not send the grid into a blackout.

That would be because our little household domestic appliances are in competition with the power-sucking desires of AI and high-performance computing.

Of course, I don’t expect that’s how our future will unveil itself. I think that we already have the solution to AI’s power demands, but what you think is important too.

That why I found our poll from last week fascinating. The is result not just affirmation of a view I’ve had for decades, but it’s finally confirmation that there are smart people out there that can see what reality looks like vs. the propaganda that’s often pushed into our faces.

Anyway, here’s the results of last week’s poll (and I’m quite chuffed with this result).

The need for nuclear is clear. The demand for it is clear. And I think that it is absolutely the answer to the long-term energy demands of our high-tech world.

That’s also why last week I let you know about a new briefing I’d released. I call it “Project Aurora” and it focuses in on this subject very precisely. In fact so precisely that there’s a single stock that you can invest in today that’s not currently listed on the stock market to play this very idea.

If you missed that briefing you can still access it by hitting this button below which will take you to my video.

Capital at risk.

Weirdest AI image of the day

Moscow after Russia becomes a US ally – r/Weirddallee

ChatGPT’s random quote of the day

The future interests me - I’m going to spend the rest of my life there.” – Mark Twain

Thanks for reading, and don’t forget to leave comments and questions below,

Sam Volkering

Editor-in-Chief

AI Collision

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